How Governments Outlaw Affordable Housing

July 31, 2017

The production of housing is one of the most regulated and micro-managed industries in the industrialized world, and attempting to meet the needs of renters and buyers continues to be guided by the prerogatives of land-use laws instead of a response to market demand.

The Band-Aid: Subsidized Housing and Inclusionary Zoning

Often, many residents who fight tooth and nail to prevent any increases in housing density or creation of more housing are the same people who say that "something must be done" to make housing more affordable.

Having caused the shortage of housing in places where people actually want to live, our "progressive" advocate for low density and exclusionary zoning may then attempt to sooth his conscience by advocating for a small number of subsidized housing units nearby. Or, he may demand "inclusionary zoning" which mandates that developers set aside a certain percentage of all new units as "affordable" units with legally-imposed limits on how high prices can go.

This, of course, does precious little to solve the problem. The subsidized units that get built are usually very small in number, and only get built after years of winding their way through the zoning and approval process. The inclusionary zoning tactic is even worse because the mandate for low-rent units discourage developers from building anything at all in that jurisdiction.

Thus, new production of housing continues to fall behind regional population growth, and rents and home prices continue to rise.

We Need More Housing of All Types

The solution to this is more housing. Not more "affordable" housing and not necessarily more "high density" housing. Housing, after all, is extremely heterogeneous. Indeed, two identical houses built a block apart are not the same — thanks to differences in location. But types of housing vary widely in nature. There are high-rise apartment buildings, single-family homes, duplexes, boarding houses, and townhouses.

Which is the best type of housing to build in any given location? Thanks to the immense diversity of renters, homeowners, locations, neighborhoods, and unit types, no person can say. In fact, it's impossible to know the answer without allowing property owners and consumers to function within the marketplace. Property owners will attempt to build housing where they feel it will best satisfy market desires. Consumers will attempt to move where housing best suits their desired lifestyle.

City planners would have us believe they can figure this all out ahead of time.

They can't.

Nor should we trouble ourselves with mandating that builders create housing that caters to low-income houses. The problem isn't too little low-income housing, per se. The problem is too little housing overall.

After all, for every new unit built — even if it's a luxury unit — the housing supply increases, prices will fall ever so slightly, all else being equal. Over time, the cumulative effect of new units built for a wide variety of price levels will be to bring housing prices down overall. As new luxury units are built, the wealthiest renters and homeowners will tend to move into newer and fancier units. The older now-less-demanded units will fall in price making them more affordable to lower-income buyers and renters.

Today's luxury units are tomorrow's affordable housing.

Unfortunately, thanks to the continuing role of government in housing production, attempting to meet the needs of renters and buyers continues to be an exhausting quest to deal with an endless assortment of ordinances, mandates, regulations, and plans. The current planners don't want more housing. The government planners only want a certain type of housing. Meanwhile, the renters live in smaller and smaller units, and drive further and further.

But there's one thing of which we can be sure. "Capitalism" will be blamed for it all.

Article by Ryan McMaken of Mises Wire and re-published under the Creative Commons Attribution-NonCommerical-NoDerivs 4.0 International License